It has been another wild week in the markets. After the holiday weekend, corn opened up strong Monday night and made significant gains during the day session Tuesday and closed near the highs. Tuesday after the close we got planting progress that was delayed a day by the holiday. USDA reported corn planting progress at 58% which was well below the market expectations at 60-63% planted compared to the 5-year average of 90% on this date. The next 7 days do not show much of a window but there does seem to be some drying after that. There are approximately 36 million acres of corn left to plant and the insurance date has passed in many areas and will soon in the rest (see map below). The market needs to get to a point to encourage people to plant corn instead of taking the prevent plant payment, even with reduced insurance. Then after we get the crop planted, we will spend the rest of the summer debating how many acres actually got planted and what kind of yield potential we have. We are in uncharted territory as far as the lateness of the crop so there is not a lot of data to determine yield potential. Then we throw some USDA reports in the mix to add even more volatility. So far this rally has been straight up. I do not believe the rest of the summer will be like that. We are probably going to have some setbacks. In a normal year there are plenty of unknowns, and this is far from a normal year. This week we saw the market make new highs up 17 cents after the planting progress to then close the day session lower.
I do not think we have seen the highs yet, but once the crop gets planted, I think we could have more down days to go along with the up market as we debate all the unique uncertainties and challenges the crop is facing this year.
We need to be prepared for this volatility and we need to continue to have the discipline to manage risk. Seeing were the market is now, all the sales that were made two weeks ago are way under water and feel like a mistake. However we have to manage risk and we started making sales at profitable levels. All it would have taken was the weather to turn dry in the Midwest and we would have been facing a similar situation to last year where we never got another chance at $4 futures. Now that our weather has turned hot and dry, we have a lot of production uncertainty of our own and many may not be comfortable making any more sales until we get a shower or some relief. For those with sales on the books, I think it is ok to be patient here and wait for more certainty in our production. Puts are expensive due to the volatility but we are getting close to being able to set a $4 floor for 15 cents. For those without much sold yet, I think you need to be taking risk off the table.
The hardest hit area right now is the eastern corn belt, Ohio and Indiana (both only at 22% planted). That is where the majority of our rail corn comes from. This matters to us because it will directly affect our basis. There are already ships on the books coming from South America into Wilmington that will cap the basis to some degree but we should still be looking at basis levels stronger than historically normal levels. I would recommend any further sales be hedged or put on hedge to arrive contracts rather than lock in basis right now.
Soybeans finally spent a couple days getting in on the party. So far, the only focus of soybeans has been to discourage Midwestern farmers from switching from corn to soybeans. This week, the market started getting concerned about yield and quality of soybeans too. Later planted beans generally yield lower meal and oil when processed. The longer term forecasts were trending drier, but have turned back wetter today. The trade war seems to be getting worse not better but it has not made many headlines in the ag world because the weather is at the forefront right now. Similarly to corn, once the crop gets in the ground, there will be a lot of volatility in both directions. If we can get close to our $9.50 order, we may pull it down to get some done. I think we can be patient on beans until next week.
Wheat combines are rolling in SC and Eastern NC. Test weight is starting off a little light in areas that were hardest hit by the heat and dry weather. Basis is starting off strong and should continue to improve. Wheat does not have the fundamental story behind the rally that corn does. We are hurting some wheat in the midwest with rain, but the world balance sheet remains very comfortable. Wheat showed yesterday that it is just along for the ride. When corn wobbled at the top, wheat immediately dropped 20 cents and struggled to get off the lows. We need to be careful with wheat going into mid june when we start getting close to delivery on the july contract. Wheat has not traded well around first notice day. When corn levels off, wheat will struggle UNLESS we get a new weather problem somewhere else in the world.
Cotton is quietly trying to close in on 70 cents for new crop. It is very dry and hot in much of the Southeast and too wet in the delta however the market is watching the Texas crop very closely. The funds have also built a significant short position in cotton so it may be vulnerable to a short covering rally. Trade talks do not seem to be progressing positively but cotton exports have been strong. Any move through 70 cents needs to be sold.
Corn Planting Progress
Crop Insurance Final Corn Plant Dates
Precip last 7 days
Forecast precip, next 7 days